Automobile distribution and BER

For many years, the competition and antitrust aspects of automobile sales and service in the entire European Economic Area were governed by the so-called Motor Vehicle Block Exemption Regulation (Motor Vehicle BER) 1400/2002. The regulation was set to expire on 31 May 2010.

While the European Commission did extend the old BER until 31 May 2013 for distribution and sales, a new Automotive (Aftersales) BER 461/2010 was introduced for the aftersales area (parts and service). It entered into force as planned on 01 June 2010 and is to stay in effect until 31 May 2023. In addition to the Aftersales BER, the service area also falls under the new General Block Exemption Regulation (General BER) 330/2010, which contains general rules on competition that apply to all industries. This creates a legally complex situation for the automobile industry in that there is the General BER for new vehicle sales, as well as the new Aftersales BER and the General BER for aftersales, in each case along with any applicable guidelines and other recommendations issued by the Commission. In particular, we would like to mention a Commission document dated 27 August 2012 entitled "Frequently Asked Questions Application of EU Antitrust Rules in the Motor Vehicle Sector".

Generally speaking, the VDIK welcomes the replacement of the old Motor Vehicle BER 1400/2002 by new arrangements. In the wake of the evaluation report published by the EU Commission in 2008, the VDIK spoke in favor of eliminating the special Motor Vehicle BER and proposed that the antitrust aspects of motor vehicle sales and service be governed by the the future General BER.

The new Aftersales BER 461/2010

We have to accept the fact that in spite of our efforts, a new automobile-specific regulation was brought in, even if this creates a legally highly complex situation by combining the old Motor Vehicle BER for new vehicle sales with the new Aftersales BER and the General BER for aftersales, in each case along with any applicable guidelines and other recommendations issued by the Commission.

Ultimately, however, the VDIK believes that the new antitrust provisions for the aftersales area should not lead to any fundamental changes for most international automobile manufacturers and their aftersales networks.

If one looks at respective block exemption regulations in conjunction with their guidelines before and after June 1st 2010, it is obvious that the regulations are very similar. This is true even if the new Motor Vehicle BER 461/2010 no longer describes interferences with access to technical information as a hardcore restriction. Likewise, in most cases it also will not make much of a difference that the new BER no longer contains any specific provisions on contract terms, notice periods, and similar aspects, especially since any such changes in the relationship between the manufacturer on one hand and the service business on the other would require the existing contracts to be terminated or at least amended by mutual agreement. In such case, attention would also have to be paid to the "Code of good practice“ which the Commission mentions repeatedly in the new guidelines.

Finally, the transferability of the service agreement to another service provider has never been a big issue in the aftersales area, as service providers are generally chosen purely on qualitative criteria. It is therefore safe to assume that the elimination of this provision in the new Motor Vehicle BER will also not have much of an impact on the business. The Federal Court of Justice did, however, rule a few weeks ago in a case involving MAN that service providers not belonging to the network do not have an enforceable civil-law claim to being granted a service agreement even if they do fulfill the standards. At first glance, this appears to be in conflict with the (antitrust) BER provision according to which a service provider can only be selected based on qualitative (and not quantitative) criteria. So far, there has been no statement from the EU Commission on this subject.

With the BER 1400/2002, the Commission introduced, as is known, a strict separation of service and sales which is now relaxed again under the new regulation in that as of 2013, the manufacturer can again require the dealer to operate an in-house repair shop. However, almost no dealers took advantage of their legal freedom to concentrate solely on new vehicle sales. Here, too, there should ultimately be no significant changes in the industry as a result of the new regulations.

Last but not least, the legal modifications regarding parts are also rather minor, even if the new regulation reads a little differently than the old one. The rights of parts manufacturers remain ultimately unchanged, and as in the past, automakers can forbid their authorized repairers to use lower quality parts. Likewise, authorized repairers can still be required to only use parts supplied by the automaker when it comes to so-called warranty repairs. This means that there have been no significant changes in this respect either, at least not in any of the provisions that are important in the daily business.

Back in 2010, the VDIK expressed doubt that any significant number of manufacturers would change existing service agreement solely based on the revision of the Motor Vehicle BER. It turned out that we were right.

The General BER 461/2010

The new (General) BER 330/2010, which has already entered into force for other industries, is into effect for the automobile trade since 01 June 2013. While this will create some new legal options to which one can react by amending the agreements, but there is no obligation to do so because all clauses currently contained in the agreements remain valid under the new BER provided they were valid before. It is therefore likely that most manufacturers have not terminated existing agreements, but instead try and negotiate smaller changes in mutual agreement with the dealers or the dealer association. Where in some networks the agreements have been terminated, this is mostly done for reasons not directly related to the BER but for instance in connection with the switch from a two-tier to a single-tier distribution system (or vice-versa), or with a change in the margin system or the standards.

From a practical point of view, the most important new possibilities since 01 June 2013 are probably the following:

- The dealer can again be prohibited from maintaining branch establishments or depots without the manufacturer's consent.

- The assignment of a dealer agreement to another dealer will again be subject to the manufacturer's approval.

- The dealer can be required to maintain an in-house repair shop for service work. This means that the dealer's ability to contract out service work has been restricted. However, this is not of major significance, as even in the past, hardly any dealer made use of this option, mainly out of financial considerations.

- Manufacturers can again require a stricter separation of vehicle makes in the showroom and even require dealers to only represent one vehicle make, at least for a duration of 5 years ("non-compete clause"). This is probably the most important change and it remains to be seen whether and, if any, which (probably mostly German) manufacturers will make use of this option in the future.

- The fact that contract terms, notice periods, recourse to arbitration and such are no longer specifically regulated in the new BER should in the great majority of cases have no significant impact, especially since the auto industry has agreed to a "Code of good practice“ in which it makes concessions to the dealers. The only thing that might be worth mentioning in this context is the fact that agreements with a limited term will no longer be required to have a minimum term of five years and that it will no longer be mandatory to give a reason in case of regular termination.

For clarification: Since 01 June 2013 all of these new possibilities, which tend to be favorable for the manufacturer, do not arise automatically but only if the manufacturer changes the agreements and incorporates the new alternatives, either through mutually agreed contract amendments or by terminating the existing agreements and entering into new ones that have been modified accordingly.

The idea occasionally voiced in the long-winded discussions around the BER extension that following the expiry of the Motor Vehicle BER, new vehicles can be bought randomly at supermarkets is absurd and merely forged by the wishful thinking of interested circles. Any automakers wishing to go down that road had always been able to do so. And those who do not will still be able to prevent their vehicles from being sold that way. Even without any special regulations, any manufacturer of brand name goods is free to establish quality requirements for dealers and only supply retailers that meet these standards. And who will that typically be? Small and medium-sized automobile dealers and repairers. This is not likely to change in the future. Not even after the General BER comes into effect for automobile distribution since mid 2013 as the development since then has shown.